How is high speed computer stock trading taxed?

In summary: You don't really. Let's say on January 1st 2019 you have -$200, 1 share of aapl and 1 share of amzn,. Aapl is trading for 100 and amzn 800. Then the net value of your portfolio is 700 dollars.Now on January 1st 2020 let's say you have 1200 dollars, 2 shares of aapl and are short 1 share of amzn. Aapl is trading for 150 and amzn 700. Not the net value of your portfolio is 800 dollars. So you made 100 dollars in profit, and pay taxes on that.Again, this is just one option companies can choose for how to pay taxes. It basically means you pay short term
  • #1
Stephen Tashi
Science Advisor
7,861
1,599
In the USA, ordinary citizens pay different tax rates for "long term capital gains" versus "short term capital gains". What rates do organizations that do high speed stock trading with computers pay? Are all their profits short term capital gains? Or do they establish themselves as businesses in way that the short-term versus long-term distinction is no longer relevant?
 
Computer science news on Phys.org
  • #2
Stephen Tashi said:
Are all their profits short term capital gains?

Yes.

Stephen Tashi said:
Or do they establish themselves as businesses in way that the short-term versus long-term distinction is no longer relevant?

Income is profit minus losses. So they pay a tiny fraction of gains since it is largely offset by losses.
 
  • #3
Rather than keeping track of the profit of each individual trade, there's a tax option where you just figure out how much money you made each year by marking all your positions to the current market prices and pay taxes on it as ordinary income without worrying about where it came from.
 
  • #4
Office_Shredder said:
Rather than keeping track of the profit of each individual trade, there's a tax option where you just figure out how much money you made each year by marking all your positions to the current market prices and pay taxes on it as ordinary income without worrying about where it came from.
That doesn't make any sense. You have to have a cost basis so it most certainly matters "where it came from".
 
  • #5
phinds said:
That doesn't make any sense. You have to have a cost basis so it most certainly matters "where it came from".

You don't really. Let's say on January 1st 2019 you have -$200, 1 share of aapl and 1 share of amzn,. Aapl is trading for 100 and amzn 800. Then the net value of your portfolio is 700 dollars.

Now on January 1st 2020 let's say you have 1200 dollars, 2 shares of aapl and are short 1 share of amzn. Aapl is trading for 150 and amzn 700. Not the net value of your portfolio is 800 dollars. So you made 100 dollars in profit, and pay taxes on that.

Again, this is just one option companies can choose for how to pay taxes. It basically means you pay short term capital gains taxes on everything, even on positions you haven't closed yet. But if all your gains are short term anyway, and you turnover your positions so fast that you have realized most of your gains already by the end of the year, the tax inefficiency is almost zero and the accounting simplicity is enormous.
 

Related to How is high speed computer stock trading taxed?

1. How is high speed computer stock trading defined for tax purposes?

High speed computer stock trading is defined as the buying and selling of stocks using computer algorithms that execute trades at lightning-fast speeds. This type of trading is also known as algorithmic or automated trading.

2. Are there specific tax laws or regulations that apply to high speed computer stock trading?

Currently, there are no specific tax laws or regulations that apply solely to high speed computer stock trading. However, the activity is subject to the same tax laws and regulations as traditional stock trading.

3. How are profits from high speed computer stock trading taxed?

The profits from high speed computer stock trading are subject to capital gains tax. This means that any gains from the sale of stocks will be taxed at the applicable capital gains tax rate, which depends on the individual's tax bracket and the length of time the stocks were held.

4. Are there any deductions or exemptions available for high speed computer stock trading taxes?

As with traditional stock trading, there are certain deductions and exemptions that may apply to taxes on high speed computer stock trading. These may include deductions for trading expenses and exemptions for capital gains on certain types of investments.

5. Do I need to report high speed computer stock trading on my tax return?

Yes, any income or profits from high speed computer stock trading must be reported on your tax return, just like any other form of income. It is important to keep accurate records of all trades and consult with a tax professional for guidance on reporting and paying taxes on this activity.

Similar threads

Replies
3
Views
740
  • General Discussion
2
Replies
46
Views
3K
  • General Math
Replies
1
Views
1K
  • Computing and Technology
Replies
2
Views
5K
Replies
95
Views
8K
  • General Discussion
Replies
16
Views
3K
Replies
2
Views
160
Replies
4
Views
2K
Replies
12
Views
4K
  • General Discussion
Replies
5
Views
4K
Back
Top